CBO: Thanks to Slower Healthcare Spending, Deficit is $200B Smaller This Year

Tax and spending changes coupled with slower-than-expected healthcare cost growth have led the Congressional Budget Office to lower this year's anticipated budget deficit to $642 billion, about 24 percent lower from its original February calculations and the smallest budget shortfall since 2008.

Medicare and Medicaid. The nonpartisan CBO painted a rosier picture for the federal budget than its February release in its updated projections, driven in large part by several consecutive years of record-low healthcare spending growth. In 2012, federal healthcare spending was 5 percent lower than the office had predicted in March 2010.

Medicare was initially expected to cost a combined $8.07 trillion between 2014 and 2023, but the CBO's latest report shaves $85 billion off that total to $7.94 trillion. Medicaid's price tag will also be $77 billion smaller, the CBO predicted, costing an estimated $4.28 trillion in that same time span. That smaller figure includes offsets from increased Medicaid enrollment under the Patient Protection and Affordable Care Act.

However, the total number of Americans who the CBO expects to be newly insured under the PPACA's insurance exchanges or optional Medicaid provision dropped from 27 million to 25 million. Those 2 million people represent a potential loss of revenue because regulatory changes will now exempt more people and businesses from the law's penalties for individuals who don't obtain health coverage and employers that don't provide it.

Deficit. This year's deficit, about 4 percent the size of the nation's gross domestic product, is less than half the size of the 2009 deficit, which was 10.1 percent the size of GDP. Recently closed tax loopholes and spending cuts have led the CBO to update its February projections to account for an anticipated revenue growth rate that will be faster than spending growth for the next two years. By 2015, the CBO predicts the deficit will fall to 2.1 percent of GDP.

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